MADRID, SPAIN Hotel Market Snapshot Madrid’s Wake-Up Call · Madrid, Spain Hotel Market Snapshot, December 2014 HIGHLIGHTS Even though it is the economic, cultural and administrative

HOTELS

MADRID, SPAINHotel Market Snapshot

Madrid’s Wake-Up Call December 2014

BNP Paribas Real Estate Hotels

Madrid, Spain Hotel Market Snapshot, December 2014

URSO Hotel & Spa (Source: Hotel)


HIGHLIGHTS

Even though it is the economic, cultural and administrative capital of Spain, Madrid has long remained in the shadow of Barcelona in terms of tourism. However, over the last decade, the city managed to renew itself and has made major investments to improve its image as well as its infrastructures. The Spanish capital has thus returned as a real challenger to the Catalan city. Madrid is one of the primary destinations for hotel investors and operators in Europe. Historically, the lack of available prime locations for luxury properties combined with high real estate prices for redevelopment have created high barriers to entry. Our Madrid Hotel Market Snapshot will give you an insight of the recent trends and developments that the Spanish capital has to offer.

MADRID - Key facts & Figures (2013)

Population (Metropolitan area) 6 463 000

GDP (Metropolitan area) € 183 792 million

GDP per capita (Metropolitan area) € 28 391

GDP growth (Metropolitan area) -1.2%

Unemployment (Metropolitan area) 20.1%

Tourism Arrivals 7 520 834

Overnight Stays 14 848 662

% Leisure tourism 82.1%

% Business tourism 17.9%

% Domestic tourism 51.0%

% International tourism 49.0%

Number of Hotels 265

Number of Hotel Rooms 67 344

Sources: IMF, Banco de España, Frontur IET, Munimadrid and BNP Paribas Research

WHAT’S NEW? WHAT’S COMING UP IN MADRID?

In September 2014, the 5-star boutique hotel URSO Hotel & Spa opened its doors. Situated 5 minutes away from the city centre, the hotel counts 78 rooms and suites.

The Canalejas development project comprises the opening of a 215-room Four Seasons property as well as luxury residences and an exclusive shopping centre by 2017.

Madrid’s prestigious Ritz hotel is currently the subject of a potential takeover by the Fairmont Group (FRHI Hotels & Resorts) for € 120 million, with an additional € 60 million renovation plan.

The Bernabeu stadium development plan, including the construction of a new hotel, is currently suspended following an investigation of the European Commission.

Monument to Alfonso XII, Retiro Park (Source: © Madrid Visitors & Convention Bureau, 2013, Photographer: Escarabajo Amarillo)

Source: © JiSign - Fotolia.com


0

10 000

20 000

30 000

40 000

50 000

60 000

Total International Domestic

- 2 000 4 000 6 000 8 000

10 000 12 000 14 000 16 000 18 000 20 000

2003 2004 2005 2006 2007 2009 2010 2011 2012 2013

0

1 000

2 000

3 000

4 000

Italy France UnitedKingdom

Germany USA

ACCESSIBILITY

Adolfo Suárez Barajas Airport, Madrid’s main international airport, located 13 km from the historic city centre, was Europe’s 6th busiest airport in 2013. From 2000 to 2013, the number of passengers increased by +21.3%, reaching its highest level in 2007. Since then, the total number of passenger movements has been decreasing, mainly due to the domestic market, and registered a total drop of -48.0% between 2007 and 2013. This significant decrease was first partially offset by the increase in international travellers until 2011, but these are now also on a downward trend. The number of international passengers has declined by -14.6% since 2011 to reach 27.7 million passengers in 2013. In 2013, the total number of passengers at Barajas airport exceeded 39 million, an important decrease of -12.1% compared to 2012, partly due to costly airport fees.

Barajas Airport – Passenger numbers and origins 2000-2013 (in thousands)

Source: AENA

Barajas Airport - Most represented international passengers 2013 (in thousands) Source: AENA

Barajas Airport, Terminal 4 (Source: © Madrid Visitors & Convention Bureau, 2013)

Besides the problem of high airport charges, the substantial decrease in the number of domestic passengers in Barajas airport since 2007 can be partially explained by the increase in train passengers and the modernisation of the AVE high-speed train network, as well as the increasing commodity of the train over the plane for medium-distance travels of up to 4 hours. The number of passengers travelling by high speed trains grew at a CAGR of +5.5% between 2003 and 2013, from 10.2 million in 2003 to 17.5 million in 2013.

Arriving and departing high-speed train passengers 2003-2007, 2009-2013 (in thousands) Source: Munimadrid, Renfe


DEMAND

Main feeder markets – Tourists arrivals 2013

Source: Instituto Nacional de Estadística

According to the European Cities Marketing Benchmark Report 2013-2014, Madrid ranks 6th on the list of the most attractive destinations in Europe after London, Paris, Berlin, Rome and Barcelona. In 2013, Madrid welcomed 7 520 834 tourists, recording a -5.1% decrease compared to 2012. Among these, more than 50% were Spanish, and almost three quarters came from Europe (including Spain), showing the high reliance of Madrid’s tourism industry on the Old Continent’s travellers. The top 5 foreign feeder markets were the United States (6.1%), the United Kingdom (3.8%), Italy (3.8%), France (3.5%) and Germany (2.5%) which together represented 19.7% of total arrivals. Over the last six years, following the same trend as Barajas airport’s passengers, the number of commercial overnights reached a record high level in 2011 with 16.4 million overnights. In 2013, overnight stays registered a decrease for the second year in a row, dropping by -3.9% compared to 2012 to reach 14.9 million overnights, a total decrease of -9.5% since 2011. Regarding the distribution by origin, international overnights represented 55.7% of the total overnight stays in 2013, reflecting a higher average length of stay than the domestic market.

Evolution of commercial overnight stays by origin 2008-2013 (in millions)

Source: Ayuntamiento de Madrid

Royal Palace (Source: © Madrid Visitors & Convention Bureau, 2013, Photographer: Promoción Madrid S.A.)

43.1 41.648.0

51.348.0

43.3

54.1 51.9

68.3

85.5

72.668.3

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2008 2009 2010 2011 2012 2013

Domestic International


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International Domestic

2012 2013

- 1 000 2 000 3 000 4 000

Reina Sofia Museum

El Prado Museum

Royal Palace

Thyssen BornemiszaMuseum

CaixaForum Museum 2012

2013

Business tourism

Madrid ranked 2nd in the 2013 International Congress and Convention Association (ICCA) ranking*, positioned right after Paris and before Vienna and Barcelona. According to the ICCA, trade fair and congress demand in Madrid has witnessed a steady growth since 2000, from 57 meetings held to 186 in 2013. Madrid counts 7 main venues dedicated to MICE tourism, such as the IFEMA (Spain’s largest convention centre), the Príncipe Felipe Congress Centre or the Municipal Conference Centre. Nonetheless, it should be noted that one of the oldest conference centre, the Centro de Convenciones located on Paseo de Castellana, closed its door for renovation in December 2012 and has remained closed since then. To date, it is unclear whether the municipality will find the required funds for its renovation. * It should be noted that the ICCA ranking should only be seen as a benchmark tool, as it only includes international meetings which rotate in a minimum of three different countries.

Participants in International Conferences & Exhibitions 2012-2013

Source: IFEMA, Munimadrid

IFEMA Centre (Source: © Madrid Visitors & Convention Bureau, 2013)

In 2014, the organisation of key international conferences and exhibitions such as the European Society of Medical Oncology (ESMO) Congress and the 16th World Congress of Psychiatry (WPA) shows the importance of Madrid as a leading MICE destination. In 2013, Madrid registered a decrease of -15.6% in the number of participants in Conferences & Exhibitions compared to 2012, mainly explained by a -18.3% drop in the number of Spanish attendees. This important decrease is partially due to the closing of the Centro de Convenciones late 2012.

Leisure tourism Renowned for its vibrant nightlife and the good quality of life it offers, Madrid also welcomes diverse major recurrent events which have a significant impact on its tourism industry, boosting hotel occupancy and revenues. For instance, in September 2014, the capital hosted some of the games of the Basketball World Cup as well as the beatification ceremony of Alvaro del Portillo. Major tourist attractions Number of visitors, 2012-2013 (in thousands) Source: BNP Paribas Real Estate Hotels

Caixa Forum (Source: © Madrid Visitors & Convention Bureau, 2013)


8.1%53.9%

27.7%

10.3%

5* 4* 3* 2* / 1*

Main recurrent events hosted in Madrid each year Length and number of participants in 2013 Source: BNP Paribas Real Estate Hotels SUPPLY

In 2013, Madrid’s total supply consisted of 265 classified hotels offering a total of 67 344 rooms. Since 2008, a total of 10 693 hotel rooms has been added to the Spanish capital, primarily in the upscale segment. The market is highly dominated by the 4-star segment which represents over 50% of the total supply, but counts a small proportion of international hotel brands compared to other similar cities. As for the 5-star and luxury segment, it is still under-represented, and Madrid’s hotel supply has long been considered to stand below other European capitals’ standards. Over the last couple of years, several national and international brands have entered the market, starting to reposition it in line with other European destinations. This movement recently recorded a marked acceleration, with the announcement in 2013 of the arrival of Four Seasons by 2017 which boosted the search for prime assets by many other upscale international hotel groups. The midscale and economic sectors are not left behind and saw the openings of two One Shot properties and two Room007 hostels in 2013 and 2014.

Hotel rooms per category 2013

Source: Munimadrid Note: Only hotels classified from 1 star to 5 stars have been taken into consideration, other categories existing in Spain (e.g. “Estrella de plata”) were not considered.

1 000 000 --

ARCOmadrid 5 days

Mercedes Benz

Fashion Week 5 days

Motomadrid 3 days

Cavalcade of the 3 Kings 1 day

Mutua Madrid Open10 days

Madrid Games Week

3 days

Suma Flamenco Festival 1 month

Number of participants

50 000 --

200 000 --

150 000 --

100 000 --

Christmas in Madrid

1 month

Month

FITUR 3 days


Besides the Four Seasons project, Madrid is the scene of other redevelopment projects, such as the Edificio de España, currently being converted into a 5-star VP hotel and expected to open in 2016. The majority of future hotel developments are focused on the 4 and 5-star segments. Based on our research, total room supply should increase by +3.7% from 2013 to 2017 to reach over 69 824 rooms. The additional 2 480 rooms to enter the market will mainly be located in the city centre within the Centro, Retiro and Chamartin districts. Even though international brands have been actively looking over the last 8 years to enter the market, only the Four Seasons Hotel in Canalejas has been confirmed so far.

Hotel supply evolution 2008-2017 forecast Source: Munimadrid, BNP Paribas Real Estate Hotels

Future hotel room supply by geographic area 2014-2017 forecast Source: BNP Paribas Real Estate Hotels

Given the high number of rooms opened over the last 3 years in Madrid and the additional room supply in the pipeline, we expect the volume of openings to slow down after 2017. Besides, even though the penetration of international brands across all segments has increased over the last decade, we expect the overall market to still be mainly driven by national hotel groups and independent owner / operators.

URSO Hotel & Spa (Source: Hotel)

< 100 rooms

> 300 rooms

> 500 rooms

> 200 rooms

> 100 rooms

Future Supply

Centro

Moncloa

Hortaleza

Retiro

Chamartin

Salamanca

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20082009 2010 2011 20122013 2014F

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Number of hotels Number of hotel rooms


Hotel supply – Recent openings 2013-2014

Year Category Hotel Rooms Location

2013 4* Holiday Inn Madrid Calle Alcala 261 Calle de Alcalá

2013 4* Hotel Exe Dome Madrid 182 Calle Maria Tubau

2013 4* Exe Moncloa 161 Calle Arcipreste Hita

2013 4* Holiday Inn Madrid LasTablas 133 Calle Maria Tubau

2013 4* Eurostars Plaza Mayor 92 Calle Cortezo

2013 4* Only You Hotel & Lounge (Ayre) 70 Calle Barquillo

2013 4* Innside Madrid Genova 65 Plaza Alonso Martinez

2013 4* Innside Madrid Luchana 43 Calle Luchana

2013 3* One Shot 23 42 Calle Prado

2013 2* hostel Room007 Ventura 21 Calle Ventura de la Vega

2013 1* Ibis Budget Madrid Las Ventas 100 Calle Siena

2013 1* Travelodge Madrid Alcala 98 Calle de Santa Leonor

2014 5* Urso Hotel & Spa 78 Calle Mejia Lequerica

2014 4* NH Collection Eurobuilding (intense refurbishment) 431 Calle de Padre Damián

2014 4* Innside Madrid Suecia (rebranding of the Suecia Hotel) 127 Calle Marqués de Casa Riera

2014 4* Hotel Indigo Gran Via 85 Calle de Silva

2014 4* Mercure Madrid Centro 59 Calle Lope de Vega

2014 3* Sidorme Hotel Las Rozas 79 Calle Peru

2014 3* One Shot 04 64 Calle Salustiano Olozaga

2014 2* hostel Room007 Chueca 33 Calle Hortaleza

2014 1* Ibis Budget Madrid Calle 30 107 Calle Lozano

2014 1* Smart Boutique Hotel Fuencarral 52 44 Calle Fuencarral

Total Rooms Recently Opened 2 375

Source: BNP Paribas Real Estate Hotels Hotel supply – Future openings 2015-2017 forecast

Year Category Hotel Rooms Location

2015 5* Hotel Ada Palace (reopening / upgrading / 3-room extension) 77 Gran VÍa

2015 4* Ayre Atocha 230 Calle Alfons XII

2015 4* Exe Central 135 Calle Mejia Lequerica

2015 4* Durval Puerta de Alcala (renovation) 70 Calle Salustiano Olozaga

2016 5* Conversion Project TBC Gran VÍa

2016 5* VP Hotel (conversion of the Edificio de España) 257 Plaza de España

2016 4* Vincci Gran Via 88 Gran VÍa

2016 3* Suite Novotel Valdebebas 126 Valdebebas

2017 5* Four Seasons Canalejas 215 Plaza Canalejas

2017 5* Bernabeu Stadium (currently interrupted by court order) 175 Padre Damian

TBC 4*/5* Hotel Project 136 Paseo de la Castellana 200

Total Rooms in the Pipeline 1 509

Source: BNP Paribas Real Estate Hotels


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2009 2010 2011 2012 2013 2014

MADRID

ROME

BARCELONA

LISBON

HOTEL PERFORMANCES

Hotel trading performances 2009-2014

Source: MKG Hospitality Database

In terms of seasonality throughout the year, demand is generally strong from March to July and September to November. Little demand is generally recorded during August and the beginning of the year. Over the 2009-2013 period, Madrid’s hotel performances were on a downward trend, except for 2010, its single year of recovery after the financial crisis. Since then, hotel occupancy dropped by -5.7 points, due to Spain’s economic situation and the significant share of domestic tourists among Madrid’s visitors. This clientele is also very price sensitive. Between 2009 and 2013, Madrid observed a -9.9% decrease in average daily rates, resulting in a RevPAR drop of -6.8%, reaching € 47.3 in 2013. However, in 2014, performances in Madrid rebounded. Occupancy rates saw a significant improvement (+5.3 points) which, combined with a slight increase in ADR of +0.8%, led to a RevPAR improvement of +9.5%, at € 51.8.

The opposite graph shows a comparison of hotel performances (RevPAR) in four major cities located in Southern Europe, including Madrid. As can be seen, all cities were affected to a different extent in 2012, after a couple of years of recovery. Even though Rome is still the leader in terms of RevPAR, the Italian city saw the most significant decrease (-10.0%) from 2012 to 2013, resulting from a drop in both occupancy and average rates. Whereas Barcelona’s performances managed to take off in 2011, recording a buoyant +26.9% RevPAR growth, the two Iberian peninsula capitals remain hovering around the € 55 threshold, with Madrid still lagging behind.

Key cities – RevPAR evolution 2009-2014

Source: MKG Hospitality Database

INVESTMENT MARKET

Many institutional investors consider the current situation as an excellent opportunity for taking positions in the hotel market in Madrid. The Spanish capital is definitely considered as one of the European hot spots of the moment for both hotel investors and operators, after London and Paris, and on par with Barcelona, its historical rival. Regarding Madrid, 2014 started very actively, with the acquisition as part of a five-hotel portfolio of the InterContinental Madrid by Katara Hospitality for an estimated € 60 million. Other noteworthy transactions were recorded in 2014, such as the sale of the landmark building Edificio España to a Chinese property developer who is currently converting it into an upscale hotel. Furthermore, the Ritz is currently the subject of a potential takeover by the Fairmont Group for € 120 million, with an additional € 60 million budget for a full renovation of the building. The sale had not been officially confirmed at the time of the writing of our Hotel Market Snapshot.

€87

.2

€84

.2

€82

.3

€80

.6

€78

.6

€79

.2

€50

.8

€55

.4

€53

.7

€49

.9

€47

.3

€51

.8

58.2%

65.8% 65.3%62.0% 60.1%

65.4%

0%

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80%

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2009 2010 2011 2012 2013 2014

ADR RevPAR Occupancy


The following table shows hotel transactions recorded in 2014 in Madrid:

Year Cat Hotel Rooms Price (€) Price per room (€) Seller Purchaser

2014 TBC Edificio España (conversion project) TBC 265 000 000 Not disclosed Banco Santander Wanda-Wang Jianlin

2014 5* InterContinental Madrid 302 60 000 000 198 675 Dutch private investor Katara Hospitality

2014 4* Foxa 32 Suites Hotel (renovation) 161 27 000 000 167 702 BBVA HVD Casas

2014 4* Foxa 25 Suites Hotel (renovation) 121 16 750 000 138 430 Not disclosed Pryconsa

2014 3* NH Pacífico 62 Not disclosed Not disclosed IDL Group Hispania Real SOCIMI

2014 3* NH San Sebastián de los Reyes 99 Not disclosed Not disclosed IDL Group Hispania Real SOCIMI

2014 2* Hotel Asturias 175 35 000 000 200 000 Salazar Family Platinum Estates

Source: BNP Paribas Real Estate Hotels OUTLOOK

Considering its higher proportion of domestic tourists, Madrid was more vulnerable to the decline of the Spanish economy than Barcelona. On the European scale, the city is one example of the most severely hit tourist destinations by the crisis. Nevertheless, an estimated +1.3% GDP growth in 2014 and forecasts of +1.9% in 2015 and +1.8% in 2016* could herald the recovery of Madrid’s hotel market for the coming years. Madrid City Council‘s focus has been on the development of Madrid as a leading MICE destination through an intense international promotion and collaboration with key actors of the industry. This commitment is very encouraging for the future, as the city ranked 2nd in the 2013 ICCA ranking and organised key international conferences and exhibitions in 2014. Between 2008 and 2013, room supply in the city increased at a CAGR of +3.5%. The announcement of an upcoming Four Seasons property in the Spanish capital started arousing the interest of other international hotel investors and operators for the city and 2014 confirmed the arrival of several international groups in the market. Further hotel openings are planned in the coming years, notably many conversion projects in the city centre. Spain’s hesitant economic recovery has made hotel investments more appealing than in other countries as investors have seen a potential for higher returns upon exit/disposal of the assets. In 2014, the market was exceptionally active in terms of hotel transactions. The announced economic recovery and the positive tourism performances in 2014 make the near future look promising for investments in the Spanish capital and we expect to see properties changing hands in its hospitality sector. *Source: BNP Paribas Research


BNP Paribas Real Estate Hotels is part of BNP Paribas Real Estate, one of the leading international real estate companies. BNP Paribas Real Estate is present in 40 countries* with more than 150 offices worldwide, offering local solutions to global requirements. Our international team of hospitality real estate professionals offers a wide range of services, including strategic consulting, development and feasibility studies and valuations as well as assistance in asset acquisitions and disposals. We cover every stage of the hospitality property cycle and have a thorough understanding of the different challenges faced by private owners, institutional investors, financing institutions or developers. We provide targeted expertise in response and our service offer is fully adaptable to meet your specific needs and requirements. For more information, please do not hesitate to contact us. * 18 under direct ownership and 22 alliances

BNP PARIBAS REAL ESTATE HOTELS

Sophie Richard, MRICS Senior Consultant [email protected] Direct line: +33 (0)1 55 65 27 43

Blandine Trotot Junior Consultant [email protected] Direct line: +33 (0)1 47 59 20 06

Laura Fleurquin Analyst [email protected] Direct line: +33 (0)1 55 65 22 21

Direction

Authors

Bruno Juin Managing Director – Hotels [email protected] Maaike Smorenburg Deputy Director – Hotels Consulting & Valuation [email protected] First Page © beatrice preve - Fotolia.com

MADRID, SPAIN Hotel Market Snapshot Madrid’s Wake-Up Call · Madrid, Spain Hotel Market Snapshot, December 2014 HIGHLIGHTS Even though it is the economic, cultural and administrative

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